The Outsider: Why this top Apple analyst is different

“Public information to me are secrets in plain sight,” Apple analyst and Asymco.com blogger Horace Dediu told me last week. “Private information on the other hand has no insights and can also lead to wrong deductions.” I am pretty sure many on Wall Street would disagree. Then again, Dediu couldn’t be further away from Wall Street, despite having being called the most accurate analyst covering Apple by Bloomberg.

I met Dediu in a coffee shop in one downtown Helsinki, where the native son of Romania used to work as an analyst for Nokia for for eight years. Dediu was educated in USA and attended the Harvard Business School. In 2007, when Apple introduced the iPhone, he saw it as an immediate threat to Nokia and the reigning mobile world order. Of course, no one listened. When Apple introduced the iTunes app store, he started a company that would help others build iPhone apps.

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In order to get constant attention to his company, he decided to blog on Asymco.com. That was in February 2010. Soon after, John Gruber of Daring Fireball linked to some of his analysis, and before he knew, his apps consultancy business was shoved aside as he started focusing almost fulltime on the blog. These days, his analysis is being read by more than 300,000 visitors a month. He is so unlike other analysts, which is why everyone from fellow bloggers to hedge fund managers and mutual fund gurus eagerly await Dediu’s next blog post.

Analysis Matters

As we sit and sip our coffees, the conversation turned towards how he approaches the market. I wanted to know: What makes him tick? He paused and thought hard in response to my questions and then concluded that what worked for him was the fact that he was an outsider. “Lot of analysts reply on connections and it is usually that what they are doing is gathering information and not doing any analysis,” he said. “I don’t have any such inside connections. What I have is Internet as my connection as it is more valuable to me than those special connections.”

So what is on his mind these days? Horace said he was thinking about the TV business and how Apple would play a role in the Internet-enabled TV revolution. “Next year will be about a new kind of a television experience,” he told me, explaining that we will start to see more “different” use cases emerge for connected television. “We need a new way of thinking about content and not duplicate the old way of thinking about content,” he says. Agreed!

Just as apps were able to become a big source of revenue on mobile phones, apps will open up monetization opportunities for video-centric content. YouTube based monetization is difficult, he argued, because one needs big audiences to create ad dollars. However, if you get paid directly for apps, even small, niche video content can thrive. These apps, of course would have to be re-imagined for bigger displays and new interaction methods through new kind of controllers – iPad or Siri, for example.
And before we part ways, he points out, all the tiny bits of information are out there in public, on the Internet.

Horace is not a typical analyst as he doesn’t work for a securities firm. As we know with what happened to Henry Blodget back when he worked as a securities analyst, those analysts who work for securities firms can have a major conflict which clouds their judgment. Horace is independent and it appears that he provides his analysis so that he can have a successful blog (and maybe ads) and maybe to fuel his speaking engagements, etc. I would rather listen to that kind of analysts than the traditional one working for a securities firm. P.S., like Horace, I too attended Tufts.

I like that Horace lays out his methodology (or his thinking) when he makes statements. And if you don’t agree with it, post a comment on the relevant blog post, and you can debate it with him. Also, he doesn’t seem to worry about being wrong. I think that’s the perfect analyst.

What I like about Horace is that a) he’s modest and b) he strives to find facts and builds arguments based on these facts, c) he doesn’t engage in unsupported opinions and hyperbole and d) he is not afraid of being wrong and admits it when he is. These personality characteristics are rarely found in bloggers, blog commentators or “analysts” in my experience. I wish I had his level of integrity.

He’s one of Apple’s biggest cheerleaders along with Andy Zaky. 300,000 people read his blog but probably none of those readers have any money to invest in Apple and probably none are hedge fund managers. Dediu never reaches the people that actually matter. The more cheerleading he does, the flatter Apple’share price is. I’ll admit he does some fancy graphing, and works Apple numbers in some wondrous ways, but it really doesn’t mean anything to shareholders who are holding on to a stock that doesn’t move and isn’t even close to moving in the ways he claims it could. If he shut down his site tomorrow it wouldn’t change a thing for Apple and shareholders.

Apple shares will still be outperformed by the likes of Google, Amazon and IBM. Those things just never change. Those stocks don’t require cheerleaders like Apple has. A company either rewards its shareholders every quarter or it doesn’t. Getting investors hopes up only to be disappointed by reality isn’t a good thing to do at all.

Horace’s posts are factually based and linked to by many others (bulls and bears) – he may seem like a cheer-leader if that’s how you define someone who is distilling information in a manner that is more compelling than others rather than predicting doom and gloom despite the performance. His work on analysis of RIM, Microsoft and Nokia is original so its not solely information about Apple. As for stock performance, I’ve been more than happy with my AAPL holdings, but I’m not a short term investor. I’m sure many other stocks will outperform AAPL – partly because most investors don’t understand the company. That’s a problem since investor intelligence is one thing AAPL itself can’t influence. Horace’s performance has been far more consistent, original and accurate than most so-called professional analysts……

While you are entitled to your opinions, I wonder how can you talk with the surety that none of his readers have any money or not professional money managers. I think you are making arguments with little or no basis in reality. As for other stocks outperforming Apple in the future, I digress.

What is your foundation for the claim that AAPL is underperforming? It has suffered multiple compression despite accelerating earnings, but it has still grown tremendously. Other than a slight beat by IBM this year and a slight beat by AMZN over the past 5 years, AAPL soundly defeats ALL THREE of these companies on 1,2,3,4,5, and 10 year historical returns.

You’re totally off base with the performance. I know it seems like AAPL should be doing even better than it is, given the multiple compression. But it has done remarkably well over any relevant time horizon. I compared AAPL with AMZN, GOOG, and IBM over 1,2,3,4,5, and 10 year horizons. Guess what – Apple wins against ALL THREE in almost every time horizon. The only exceptions are slight nudges by IBM this year and AMZN over the 5 year horizon. Otherwise it’s a clean sweep, mostly in convincing fashion.

@OM I have the table if you’d like. I don’t know how to post images to your site.

I’ve written 994 posts in the last 20 months or so. 181 are tagged as Financial though I’d venture that even though they mostly review Apple financials the stock price is discussed in fewer than 10% or about 18 posts.

One of Horace’s best recent posts featured an exegesis of Apple quarterly reports over time to deduce how much they’re spending to open each retail store. Horace proves that thoughtful, intelligent analysis is at least as valuable as inside info, if not more.

One of my favorite quotes is from the British mystery series “Touch of Frost” in which Inspector Frost tells a young constable that “… it’s better to be out of step because you tread on the bits that other people miss.”